BRIDGFORD FOODS CORP - Quarter Report: 2016 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended April 15, 2016

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________.

Commission file number                                     000-02396

BRIDGFORD FOODS CORPORATION

(Exact name of Registrant as specified in its charter)

1308 N. Patt Street, Anaheim, CA  92801

(Address of principal executive offices-Zip code)

714-526-5533

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   [ X ]                  No [   ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   [ X ]                  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   [   ]                  No [ X ]

As of May 23, 2016 the registrant had 9,076,832 shares of common stock outstanding. 

BRIDGFORD FOODS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

References to "Bridgford Foods" or the "Company" contained in this Quarterly Report on Form 10-Q refer to Bridgford Foods Corporation.

Items 1, 3, 4 and 5 of Part II have been omitted because they are not applicable with respect to the Company and/or the current reporting period. 

Part I.  Financial Information

Item 1. A.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements. 

Item 1. B.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements.

Item 1. c.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands) 

See accompanying notes to condensed consolidated financial statements.  

Item 1. d.

BRIDGFORD FOODS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except percentages, share and per share amounts)

(dollars in thousands)

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934 (the “Exchange Act”).  Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of Bridgford Foods Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the following: general economic and business conditions; the impact of competitive products and pricing; success of operating initiatives; development and operating costs; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes in business strategy or development plans; availability, terms and deployment of capital; availability of qualified personnel; commodity, labor, and employee benefit costs; changes in, or failure to comply with, government regulations; weather conditions; construction schedules; and other factors referenced in this Quarterly Report on Form 10-Q.  Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our business, financial position, results of operations and cash flows.  The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our Annual Report on Form 10-K for the fiscal year ended October 30, 2015.  We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Critical Accounting Policies and Management Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the respective reporting periods.   Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates. We determine the amounts to record based on historical experience and various other assumptions that we view as reasonable under the circumstances and consider all relevant available information.  The results of this analysis form the basis for our conclusion as to the value of assets and liabilities that are not readily available from other independent sources.   Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates.

Current accounting principles require that our pension benefit obligation be measured using an internal rate of return (“IRR”) analysis to be included in the discount rate selection process. The IRR calculation for the Retirement Plan for Employees of Bridgford Foods Corporation is measured annually and based on the Citigroup Pension Discount Rate. The Citigroup Pension Discount Rate as of April 30, 2016 was 3.83% as compared to 4.29% at October 31, 2015. The discount rate applied can significantly affect the value of the projected benefit obligation as well as the net periodic benefit cost.

Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial.  The provision for doubtful accounts receivable is based on historical trends and current collection risk.  We have significant receivables with a few large, well known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. We monitor these customers closely to minimize the risk of loss.

The table on the next page shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated revenues for the twenty-four weeks ended April 15, 2016 and April 17, 2015, respectively.

Customer Concentration > 20% of AR or 10% of Sales * 

Sales are recognized upon passage of title to the customer, typically upon product pick-up, shipment or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet or through our own direct store delivery system.   

We record the cash surrender or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period.

We provide tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities.  The development of these reserves requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate.  Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities, if any, resulting from these reviews.  Actual outcomes may differ materially from these estimates.

We assess the recoverability of our long-lived assets on a quarterly basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets.  If undiscounted cash flows are not sufficient to support the recorded assets, we recognize an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.

We participate in “multiemployer” pension plans administered by labor unions on behalf of their employees. We pay monthly contributions to union trust funds, a portion of which is used to fund pension benefit obligations to plan participants. The contribution amount may change depending upon the ability of participating companies to fund these pension liabilities as well as the actual and expected returns on pension plan assets. Should we withdraw from the union and cease participation in a union plan, federal law could impose a penalty for additional contributions to the plan. The penalty would be recorded as an expense in the consolidated statement of operations. The ultimate amount of the withdrawal liability is dependent upon several factors including the funded status of the plan and contributions made by other participating companies.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”), was signed into law.  The PPACA contains provisions which may impact the Company’s accounting of other postemployment benefit (“OPEB”) obligations in future periods.  Regulatory guidance for implementation of some of the provisions of the PPACA has not yet been established.  Requirements of the law include the removal of the lifetime limits on active and retiree medical coverage, expanding dependent coverage to age 26 and elimination of pre-existing conditions that may impact OPEB costs.  In addition, the PPACA includes an excise tax in 2020 on the value of benefits that exceed a pre-defined limit which may require changes in benefit plan levels in order to minimize this additional cost. Finally, the PPACA includes provisions that require employers to offer health benefits to all full time employees (defined as 30 hours per week).  The health coverage must meet minimum standards for the actuarial value of the benefits offered and employee affordability.  The current Bridgford plans meet the existing requirements but we have seen the guidance change each year so this will need to be reviewed annually.  We will continue to assess the accounting implications of the PPACA and its impact on our financial position and results of operations as more legislative and interpretive guidance becomes available.  The potential future effects and cost of complying with the provisions of the PPACA are not determinable at this time. 

Overview of Reporting Segments

We operate in two business segments – the processing and distribution of frozen products (the Frozen Food Products segment), and the processing and distribution of snack food products (the Snack Food Products segment).  For information regarding the separate financial performance of the business segments refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.  We manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items, dry sausage products and beef jerky.

Frozen Food Products Segment

In our Frozen Food Products segment, we manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items and shelf stable sandwiches.  All items within this segment are considered similar products and have been aggregated at this level.  Our Frozen Food Products segment serves both food service and retail customers.  Products produced in this segment are supplied through leased long-haul vehicles to food service and retail distributors that take title to the product upon shipment receipt.  Approximately 160 unique frozen food products are sold through wholesalers, cooperatives and distributors to approximately 21,000 retail outlets and 23,000 restaurants and institutions.   

Snack Food Products Segment

In our Snack Food Products segment, we primarily distribute products manufactured by us.   All items within this segment are considered similar products and have been aggregated at this level.  The dry sausage division includes products such as jerky, meat snacks, sausage and pepperoni products.   Our Snack Food Products segment sells approximately 90 different items through a direct store delivery network serving approximately 15,000 supermarkets, mass merchandise and convenience retail stores located in 49 states.  These customers are comprised of large retail chains and smaller “independent” operators. 

Products produced or distributed by the Snack Food Products segment are supplied to customers through either direct-store-delivery or direct delivery to customer warehouses. Product delivered using the company-owned fleet direct to the store is considered a direct-store-delivery. In this case, we provide the service of setting up and maintaining the display and stocking our products. Products delivered to customer warehouses are distributed to the retail store and stocked by the customer where it is then resold to the end consumer. 

Results of Operations for the Twelve Weeks ended April 15, 2016 and April 17, 2015.

Net Sales-Consolidated

Net sales increased by $4,449 (16.7%) to $31,145 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period last year.  The changes in net sales were comprised as follows:

Net Sales-Frozen Food Products Segment

Net sales in the Frozen Food Products segment decreased by $405 (3.5%) to $11,155 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period last year.  The changes in net sales were comprised as follows:

Sales volume declined 2.5% compared to the prior year. Most product categories declined with the exception of rolls and monkey bread which had volume increases. Selling prices remained unchanged compared to the prior year. Returns activity decreased slightly. Promotional activity was higher due to increased bid price and menu allowances offered compared to the same twelve week period in the 2015 fiscal year.

Net Sales-Snack Food Products Segment

Net sales in the Snack Food Products segment, increased by $4,854 (32.1%) to $19,990 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period last year.  The changes in net sales were comprised as follows:

The weighted average selling price per pound increased over the same twelve week period in the prior year primarily as a result of a shift to higher value beef products. Volume also increased in the beef products category. Volume related to pork based products was lower and selling prices declined slightly compared to the prior twelve week period. Returns activity was lower than the prior year. Promotional offers increased slightly but not at the same pace as sales increased compared to the same twelve week period in the 2015 fiscal year.

Cost of Products Sold and Gross Margin-Consolidated

Cost of products sold increased by $2,495 (15.2%) to $18,914 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period in fiscal year 2015.  The increase in cost of products sold primarily relates to increased sales which was partially offset by lower costs for meat ingredients. Overhead spending increased due to higher pension costs and hourly wages and bonus. The Company's pension cost increased due to a revision to the expected return on plan assets coupled with an adverse change in mortality tables. The gross margin increased from 38.5% to 39.3%. 

Cost of Products Sold-Frozen Food Products Segment

Cost of products sold in the Frozen Food Products segment decreased by $116 (1.6%) to $6,987 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period in fiscal year 2015. Lower sales volume and to a lesser extent lower flour commodity costs were the primary contributing factors to this decrease. Overhead spending increased due to higher pension costs which partially offset the decline in cost of products sold. The cost of purchased flour decreased approximately $153 in the second twelve week period of fiscal 2016 compared to the same twelve week period in the prior year.  The gross margin percentage decreased from 38.6% to 37.4% in the second twelve week period of fiscal year 2016 compared to the same twelve week period in the prior fiscal year.

Cost of Products Sold-Snack Food Products Segment

Cost of products sold in the Snack Food Products segment increased by $2,611 (28.0%) to $11,927 in the second twelve week period of the 2016 fiscal year compared to the same twelve week period in fiscal year 2015 due to a substantial increase in sales volume including higher margin product mix. The increase in cost of goods sold was partially offset by lower meat commodity costs. Overhead spending increased due to higher hourly wages and bonuses. The cost of significant meat commodities decreased approximately $1,413 in the second twelve week period of fiscal 2016 compared to the same period in the prior year.  The gross margin earned in this segment increased from 38.5% to 40.3% in the second twelve week period of fiscal year 2016 compared to the prior year period primarily as a result of lower meat commodity costs and higher margin product mix.  

Selling, General and Administrative Expenses-Consolidated

Selling, general and administrative (“SG&A”) expenses increased by $1,685 (20.9%) to $9,760 in the second twelve week period of fiscal year 2016 compared to the same twelve week period in the prior fiscal year.  The table below summarizes the significant expense/gain increases/decreases included in this category:

Higher profits and profit sharing accruals resulted in increased wages and bonus in the second twelve weeks of the 2016 fiscal year compared to the same period in the prior year. Outside consulting costs increased due to higher real estate advisory services and other related legal fees. The increase in pension cost was due to a revision to the expected return on plan assets coupled with an adverse change in mortality tables. Costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the Snack Food Products segment during the second quarter of fiscal 2016. The cash surrender value on life insurance policies increased due to market gains in the underlying equities that support the policies compared to the same twelve week period in fiscal 2015. None of the changes individually or as a group of expenses in “Other SG&A” were significant enough to merit separate disclosure.  The major components comprising the increase of “Other SG&A” expenses were the gain on return of leased trucks in the comparison quarter that did not reoccur in the current quarter along with insurance expense in the current quarter.

Selling, General and Administrative Expenses-Frozen Food Products Segment

SG&A expenses in the Frozen Food Products segment increased by $174 (5.6%) to $3,290 in the second twelve week period of fiscal year 2016 compared to the same twelve week period in the prior fiscal year.  The overall increase in SG&A expenses was due to higher pension cost and a gain on return of leased trucks in the comparison quarter that did not reoccur in the current quarter.  

Selling, General and Administrative Expenses-Snack Food Products Segment

SG&A expenses in the Snack Food Products segment increased by $1,511 (30.5%) to $6,470 in the second twelve week period of fiscal year 2016 compared to the same twelve week period in the prior fiscal year.  Most of the increase was due to higher sales and increased payments under product licensing agreements.

Income Taxes-Consolidated

Income tax for the twelve weeks ended April 15, 2016 and April 17, 2015, respectively, was as follows: 

We recorded a tax provision of $979 for the twelve week period ended April 15, 2016, related to federal and state taxes, based on the Company's expected annual effective tax rate. The effective income tax rate differed from the applicable mixed statutory rate of approximately 37.7% primarily due to the valuation allowance reversal on our deferred tax assets in fiscal 2015. 

Net Income -Consolidated

The net income of $1,492 in the twelve weeks ended April 15, 2016 includes a non-taxable gain on life insurance policies in the amount of $238. The net income of $2,202 in the twelve weeks ended April 17, 2015 includes a non-taxable gain on life insurance policies in the amount of $70. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities that support policy values and future results may vary considerably.

Results of Operations for the Twenty-four Weeks ended April 15, 2016 and April 17, 2015.

Net Sales-Consolidated

Net sales increased by $5,894 (9.6%) to $67,301 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period last year.  The changes in net sales were comprised as follows:

Net Sales-Frozen Food Products Segment

Net sales in the Frozen Food Products segment decreased by $1,572 (6.5%) to $22,641 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period last year.  The changes in net sales were comprised as follows:

Sales volume declined about 4.9% compared to the prior year. All product categories declined with the exception of monkey bread which had an overall volume increase. Selling prices remained relatively unchanged compared to the prior year. Returns activity decreased slightly.  Promotional activity was higher due to increased bid price and menu allowances offered compared to the same twenty-four week period in the 2015 fiscal year.  

Net Sales-Snack Food Products Segment

Net sales in the Snack Food Products segment, increased by $7,466 (20.1%) to $44,660 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period last year.  The changes in net sales were comprised as follows:

The weighted average selling price per pound increased over the same twenty four-week period in the prior year primarily as a result of a shift to higher value beef products. Volume in the beef products category also increased. Volume related to pork based products was lower and selling prices increased slightly compared to the prior twenty-four week period. Promotional and returns activity were both lower than the prior year due to more limited promotional offers on warehouse shipments compared to the same twenty-four week period in the 2015 fiscal year.

Cost of Products Sold and Gross Margin-Consolidated

Cost of products sold decreased by $222 (0.5%) to $41,291 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period in fiscal year 2015.  The reduction in cost of products sold primarily relates to lower costs for meat ingredients which outpaced the increase in sales volume. Overhead spending increased slightly due to higher pension costs and hourly wages and bonus. The Company's pension cost increased due to a revision to the expected return on plan assets coupled with a adverse change in mortality tables. The gross margin increased from 32.4% to 38.6%. 

Cost of Products Sold-Frozen Food Products Segment

Cost of products sold in the Frozen Food Products segment decreased by $821 (5.5%) to $14,093 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period in fiscal year 2015. Lower sales volume and to a lesser extent lower flour commodity costs were the primary contributing factors to this decrease. Overhead spending increased due to higher pension cost. The cost of purchased flour decreased approximately $340 in the twenty-four week period of fiscal 2016 compared to the same twenty-four week period in the prior year.  The gross margin percentage decreased from 38.4% to 37.8% in the first twenty-four week period of fiscal year 2016 compared to the same twenty-four week period in the prior fiscal year.

Cost of Products Sold-Snack Food Products Segment

Cost of products sold in the Snack Food Products segment increased by $599 (2.3%) to $27,198 in the twenty-four week period of the 2016 fiscal year compared to the same twenty-four week period in fiscal year 2015 due primarily to higher sales volume for warehouse shipments which was partially offset by lower meat commodity costs. Overhead spending increased due to higher hourly wages and bonus partially offset by reductions in healthcare and workers’ compensation. The cost of significant meat commodities decreased approximately $3,131 in the first twenty-four week period of fiscal 2016 compared to the same period in the prior year.  The gross margin earned in this segment increased from 28.5% to 39.1% in the twenty-four week period of fiscal year 2016 compared to the prior year period primarily as a result of lower meat commodity costs and higher margin product mix.   

Selling, General and Administrative Expenses-Consolidated

Selling, general and administrative (“SG&A”) expenses increased by $3,213 (18.7%) to $20,438 in the twenty-four week period of fiscal year 2016 compared to the same twenty-four week period in the prior fiscal year.  The table below summarizes the significant expense/gain (loss) increases/decreases included in this category:

Higher profits and profit sharing accruals resulted in increased wages and bonus in the twenty-four weeks of the 2016 fiscal year compared to the same period in the prior year. The increase in pension cost was due to a revision to the expected return on plan assets coupled with an adverse change in mortality tables. Costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the Snack Food Products segment during the first quarter of fiscal 2016. Outside consulting costs increased due to higher real estate advisory services and other related legal fees. The cash surrender value on life insurance policies decreased substantially due to market losses in the underlying equities that support the policies compared to the same twenty-four week period in fiscal 2015. The provision for doubtful accounts was lowered due to positive collection activity. None of the changes individually or as a group of expenses in “Other SG&A” were significant enough to merit separate disclosure.  The major components comprising the increase of “Other SG&A” expenses were higher travel and business, postage, employee training and subscriptions.

Selling, General and Administrative Expenses-Frozen Food Products Segment

SG&A expenses in the Frozen Food Products segment increased by $142 (2.1%) to $6,939 in the twenty-four week period of fiscal year 2016 compared to the same twenty-four week period in the prior fiscal year.  The overall increase in SG&A expenses was mainly due to higher pension cost. 

Selling, General and Administrative Expenses-Snack Food Products Segment

SG&A expenses in the Snack Food Products segment increased by $3,071 (29.4%) to $13,499 in the twenty-four week period of fiscal year 2016 compared to the same twenty-four week period in the prior fiscal year.  Most of the increase was due to higher sales and increased payments under product licensing agreements.

Income Taxes-Consolidated

Income tax for the twenty-four weeks ended April 15, 2016 and April 17, 2015, respectively, was as follows: 

We recorded a tax provision of $2,208 for the twenty-four week period ended April 15, 2016, related to federal and state taxes, based on the Company's expected annual effective tax rate. The effective income tax rate differed from the applicable mixed statutory rate of approximately 37.7% primarily due to the valuation allowance reversal on our deferred tax assets in fiscal 2015. 

Net Income -Consolidated

The net income of $3,364 in the twenty-four weeks ended April 15, 2016 includes a non-taxable loss on life insurance policies in the amount of $84. The net income of $2,669 in the twenty-four weeks ended April 17, 2015 includes a non-taxable gain on life insurance policies in the amount of $136. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities that support policy values and future results may vary considerably. 

Liquidity and Capital Resources

The principal source of our operating cash flow is cash receipts from the sale of our products, net of costs to manufacture, store, market and deliver our products.  We have remained free of interest bearing debt (excluding capital leases) for twenty-seven of the last twenty-eight years (with fiscal 2014 being the only exception) and normally fund our operations from cash balances and cash flow generated from operations.  Historically, we expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales.  Anticipated commodity price trends may affect future cash balances.  Certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing.

Cash flows from operating activities for the twenty-four weeks ended: 

For the twenty-four weeks ended April 15, 2016, net cash provided by operating activities was $5,540, $2,353 less cash provided than during the same period in fiscal 2015.  Net cash provided by operating activities increased primarily due to the liquidation of inventory of $1,400 and net income of $3,364 partially offset by payment of estimated income tax payments of $1,559. The significant liquidation of inventory related to shipments of product to satisfy large warehouse customer orders during the first and second quarters of fiscal 2016. During the twenty-four week period ended April 15, 2016 we funded $601 towards our defined benefit pension plan. Plan funding strategies may be adjusted depending upon economic conditions, investment options, tax deductibility, or recent legislative changes in funding requirements. The Company did not borrow on the line of credit with Wells Fargo during the twenty-four weeks ended April 15, 2016.

Our cash conversion cycle (defined as days of inventory and trade receivables less days of trade payables outstanding) was equal to 65 days for the twenty-four week period ended April 15, 2016.  The cash conversion cycle increased due to extended terms with significant customers.

For the twenty-four weeks ended April 17, 2015, operating cash flows increased due primarily to a net income of $2,669 and the liquidation of inventory of $5,595. During the twenty-four week period ended April 17, 2015 we funded $556 towards our defined benefit pension plan.

Cash used in investing activities for the twenty-four weeks ended:

Expenditures for property, plant and equipment include the acquisition of new equipment, upgrading of facilities to maintain operating efficiency and investments in cost effective technologies to lower costs. In general, we capitalize the cost of additions and improvements and expense the cost for repairs and maintenance.  The Company may also capitalize costs related to improvements that extend the life, increase the capacity, or improve the efficiency of existing machinery and equipment.  Specifically, capitalization of upgrades of facilities to maintain operating efficiency include acquisitions of machinery and equipment used on packaging lines and refrigeration equipment used to process food products.

The table below highlights additions to property, plant and equipment for the twenty-four weeks ended: 

Cash used in financing activities for the twenty-four weeks ended:  

Our stock repurchase program was approved by the Board of Directors in November 1999 and was expanded in June 2005.  Under the stock repurchase program, we are authorized, at the discretion of management and the Board of Directors, to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market.  As of April 15, 2016, 120,113 shares were still authorized for repurchase under the program.  

We invested in OTR (over-the-road) tractors during the third quarter of fiscal 2012 financed by a capital lease obligation in the amount of $1,848. After reevaluating our fleet delivery needs, we returned five OTR tractors financed by the capital lease arrangement with a remaining liability of $656 during the second quarter of fiscal 2015. The total capital lease obligation remaining as of April 15, 2016 is $652. The capital lease arrangement replaced the long-standing month-to-month leases of transportation equipment.

We maintain a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2018. Under the terms of this line of credit, we may borrow up to $4,000 at an interest rate equal to the bank’s prime rate or Libor plus 1.5%. The borrowing agreement contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, a minimum net income after tax and total capital expenditures less than $3,000. The Company was in compliance with all covenants as of April 15, 2016. There have been no borrowings under this line of credit during fiscal 2016.

The impact of inflation on the Company’s financial position and results of operations has not been significant. Management is of the opinion that the Company’s financial position and its capital resources are sufficient to provide for its operating needs and capital expenditures for the remainder of fiscal 2016.  

Recent Accounting Pronouncements 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S. GAAP. The guidance presents steps for comprehensive revenue recognition that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance becomes effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating this statement and its impact on its results of operations or financial position.

In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory”. The guidance is part of the “Simplification Initiative” to identify and re-evaluate areas where the generally accepted accounting principles may be complex and cumbersome to apply. The guidance will require that inventory be stated at the lower of cost and net realizable value as opposed to the lower of cost or market. Net realizable value is the estimated selling price for the inventory less completion, disposal and transportation costs. The guidance becomes effective for fiscal years beginning after December 15, 2016. Adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 6, 2016 with early adoption permitted. The Company applied this guidance to its fiscal year ended October 30, 2015. Adoption of this guidance had no material impact on the results of operations or financial position.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” that requires most equity investments be measured at fair value and subsequent changes in fair value recognized in net income. The guidance covers presentation and disclosure requirements of financial liabilities and the classification and measurement of financial instruments. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. The Company is currently evaluating this statement and its impact on its results of operations or financial position.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which will require a lessee to recognize assets and liabilities with lease terms of more than 12 months. Both capital and operating leases will need to be recognized on the balance sheet. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.  The Company is currently evaluating this statement and its impact on its results of operations or financial position.

In March 2016, the FASB issued ASU 2016-09 guidance which simplifies various aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes consequences, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016 with early adoption permitted. Adoption of this guidance should have minimal impact if any on results of Company operations or financial position.

Off-Balance Sheet Arrangements

We are not engaged in any “off-balance sheet arrangements” within the meaning of Item 303(a)(4)(ii) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting company.

Item 4. Controls and Procedures

Our management, with the participation and under the supervision of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report. Based on this evaluation the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management and  recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and were accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We maintain and evaluate a system of internal accounting controls, and a program of internal auditing designed to provide reasonable assurance that our assets are protected and that transactions are performed in accordance with proper authorization, and are properly recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by the independent registered public accounting firm.  On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published Internal Control-Integrated Framework (2013) (the "2013 Framework") and related illustrative documents as an update to Internal Control-Integrated Framework (1992) (the "1992 Framework"). The Company has adopted the 2013 Framework this fiscal year and has determined that the 17 principles are present and functioning during our assessment of the effectiveness of internal controls. We have established a code of conduct.  Our management believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable.

The Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent registered public accounting firm engaged by us.  Internal accounting controls and the quality of financial reporting are discussed during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required to be discussed by the auditing standards adopted or established by the Public Company Accounting Oversight Board. In addition, the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting firm’s independence from the Company and its management, including the matters in the written disclosures required by Public Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”.

There have been no changes in our internal controls over financial reporting that occurred during the fiscal quarter ended April 15, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II.  Other Information

Item 1A. Risk Factors

The risk factors listed in Part I “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended October 30, 2015 should be considered with the information provided elsewhere in this Quarterly Report on Form 10-Q, which could materially adversely affect our business, financial condition or results of operations.  There have been no material changes to the risk factors as previously disclosed in such Annual Report on Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

We have not sold any equity securities during the period covered by this Report.

The following table provides information regarding repurchases by us of our common stock, for each of the three four-week periods included in the interim twenty-four week period ended April 15, 2016.

ISSUER PURCHASES OF EQUITY SECURITIES

Item 6.

Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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